Just the other day, I had a discussion with a local small business owner about where his money went. His financials showed he made a profit, but he did not have it in his bank account. As we talked, I asked questions about his record-keeping. He pulled out his checkbook and indicated that that was his method of keeping records. I asked about balance sheets, cash flow and profit and loss and he was hooked to learn more.

Unfortunately, that conversation is not rare among small business owners. Sure, when the business started, it was easy to track it in the checkbook. But as a business grows, employees are hired and revenue increases, a more sophisticated method is usually required in order to better financially manage the business.

Many small business owners went into business to sell and make money, not to do the books. So it may come as no surprise that people often feel that ignorance is bliss when it comes to accounting. If financial information doesn't show, then it is not happening. If only that were true.

A tip for business owners is that they should budget some time each week to go over the financials. This weekly review will eliminate many of the “bite you in the butt” surprises that often become a big deal very quickly and is part of running the business like a business, not a personal hobby. Owners are encouraged to not enjoy ignorance on their business’s financials.

Tip 2 is to keep your growth in check and look for it on the financials. Nothing eats cash faster than uncontrolled growth in a business. Often, expenses are paid before the sale is realized, so that creates a drain on cash. So grow only at the pace the business can afford.

Tip 3 is to know your numbers — the daily cost of operating the business, the costs of producing the items the business sells, the cost of utilities. These numbers are examples of what needs to be known by a business owner to help plan for adequate cash flow. The old saying that “If you can’t measure it, you can’t manage it” is very true here. Expenses and cash flow are examples of trackable items that can be measured and managed. In fact, knowing these types of numbers will help a business owner make more informed decisions on everything from growth to hiring to bills.

Tip 4 — Knowing your numbers sets the business on the path to success. If a business owner is in control of the finances (numbers), then the business is on a profitable journey. By managing the finances, an owner knows when to ask for additional funding and has the power to support the request. This knowledge allows the owner to answer the two biggest questions a lender has:

  1. Are you qualified to do what you say you can do?
  2. Are you capable of managing the business?

Imagine the relief of being able to say “Yes” to these questions and having the knowledge to back it up.

Tip 5 — If managing the business by the numbers is too much to grasp, then enlist the aid of a professional. Call a bookkeeper or a certified public accountant (CPA) to help or the local Small Business Technology Development Center. Both are sources of assistance for understanding business financials.

Your area Missouri SBDC can help answer questions, offers training and one-on-one appointments, reach out to a location near you.

The Missouri SBDC is funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.